Project-Syndicate.
NEW YORK – While the risk of a disorderly crisis in the eurozone is well
recognized, a more sanguine view of the United States has prevailed.
For the last three years, the consensus has been that the US economy was
on the verge of a robust and self-sustaining recovery that would
restore above-potential growth. That turned out to be wrong, as a
painful process of balance-sheet deleveraging – reflecting excessive
private-sector debt, and then its carryover to the public sector –
implies that the recovery will remain, at best, below-trend for many
years to come.
Even this year, the consensus got it wrong, expecting a
recovery to above-trend annual GDP growth – faster than 3%. But the
first-half growth rate looks set to come in closer to 1.5% at best, even
below 2011’s dismal 1.7%. And now, after getting the first half of 2012
wrong, many are repeating the fairy tale that a combination of lower
oil prices, rising auto sales, recovering house prices, and a resurgence
of US manufacturing will boost growth in the second half of the year
and fuel above-potential growth by 2013.
The reality is the opposite: for
several reasons, growth will slow further in the second half of 2012
and be even lower in 2013 – close to stall speed. First, growth in the
second quarter has decelerated from a mediocre 1.8% in January-March, as
job creation – averaging 70,000 a month – fell sharply.
